Given the following information, use total cost analysis to determine which supplier is more cost-effective. Late delivery of raw material results in 60 percent lost sales and 40 percent back orders if finished goods.
|
Order lot size
|
1000 |
|
Requirements (annual forecast)
|
120000 units
|
|
Weight per engine
|
22 pounds
|
|
Order processing cost
|
125/ Order
|
|
Inventory caring rate
|
20% per year
|
|
Cost of working capital
|
10% per year
|
|
Profit margin
|
15%
|
|
Price of finished goods
|
$4500 |
|
Back order cost
|
$15 per unit
|
|
Unit price
|
Supplier 1
|
Supplier 2
|
|
1 to 999 units/order
|
$50 |
$49.50 |
|
1000 to 2999 units/order
|
$49 |
$48.50 |
| 3000+units/order |
$48 |
$48 |
|
Tooling cost
|
$12000 |
$10000 |
|
Terms
|
2/10,net 30
|
1/10, net 30
|
|
Distance
|
125 miles
|
100 miles
|
|
Supplier Quality Rating
|
2% |
2% |
|
Supplier Delivery Rating
|
1% |
2% |
Truckload (TL >=40,000 lbs.): $0.85 per ton mile
Less than truckload (LTL): $1.10 per ton mile
Note: per ton mile= 2000lbs per mile; number of days per year= 365